European Liberal Forum Research Paper No 2 | July 2021Clean Hydrogen and the Future of Energy European Liberal Forum Discussion Paper No 6 | June 2021Europe’s Strategic Autonomy in space, through space

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Ricardo Silvestre,

PhD

International Officer, Social Liberal Movement

RESEARCH PAPER

No 2 | July 2021

The paper describes the path set for using hydrogen in the

context of European decarbonisation and sustainability

projects. Although hydrogen can be used as a feedstock,

fuel, energy carrier, and storage in several sectors such as

transport, energy, building, and industry, it still represents only

a small part of the energy mix. Nonetheless, its use remains

a priority in the context of the EU Green Deal and transitions

objectives. The paper also considers the technical and

regulatory aspects and challenges of large-scale deployment

and use of hydrogen in the EU. As the authors point out, there

is a need for more investments in the sector, while liberal

values are claimed to be essential to ensure that this market is

free, open, and with strong participation of the private sector.

Abstract:

liberalforum.eu

Clean Hydrogen and the Future of Energy:

Investing in a Sustainable

Growth for the EU

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Introduction

The European Union is inexorably moving towards transformative transitions:

societal, economical, digital, and ecological, among others. One of these

transitions, the shift to non-polluting fuels for energy needs, is transversal to

several sectors. This will play a crucial role in the development of new solutions for

end users, the creation of market opportunities, and environmental protection.

As in other significant moments of change, there is a need for bold vision,

adjusted and sustainable objectives, smart investments, and the involvement of

multiple stakeholders. For that, the best technical solutions and policies need

to be implemented. Liberal concepts of economic systems—capital markets,

competition, entrepreneurship, and free markets—can play an important role in

assisting lawmakers and politicians to find the most successful way to navigate

these challenges.

The International Energy Agency predicted at the end of 2019 that global energy

demand would continue to increase by possibly 25% to 30% until 2040.1 If these

needs continue to be supported by the utilisation of coal and oil, there will be

a continuous release of greenhouse gases into the atmosphere. The European

Commission has proposed, alongside a provisional agreement with the European

Parliament and Member States,2 a reduction in the emissions of these gases by

at least 55% by 2030.3 This aim would have the Union reach a climate neutral

economy by 2050, fulfilling its commitments derived from the Paris Agreement.4

To make this happen, there is a need to integrate energy networks for smarter,

more cohesive, and optimised systems, aiming for the full decarbonisation of

industries and economies.5 To achieve this, hydrogen production will play a key

role. Therefore, the Commission has adopted a hydrogen strategy for climate-

neutral Europe6 that includes investment plans, roadmaps, policy frameworks,

guidelines for research, innovation, and operational needs, and the know-how to

develop an international dimension. The development of comprehensive, smart,

and economically viable hydrogen strategies, both at the central level and in

Member States, will be crucial to keeping European economies competitive and

sustainable. In addition, these initiatives will allow the European Union to assume

1 International Energy Agency, “World Energy Outlook 2019”, https://www.iea.org/reports/world-energy-

outlook-2019 (accessed 20 April 2021).

2 Council of the European Union, “European climate law: Council and Parliament reach provisional

agreement”, (21 April 2021), https://www.consilium.europa.eu/e3n/press/press-releases/2021/04/21/

european-climate-law-council-and-parliament-reach-provisional-agreement/ (accessed 30 May 2021).

3 European Commission, “2030 Climate Target Plan,” https://ec.europa.eu/clima/policies/eu-climate-

action/2030_ctp_en (accessed 20 April 2021).

4 European Commission, “2050 long-term strategy”, https://ec.europa.eu/clima/policies/strategies/2050_

en (accessed 20 April 2021).

5 European Commission, “EU strategy on energy system integration” (8 January 2021), https://ec.europa.

eu/energy/topics/energy-system-integration/eu-strategy-energy-system-integration_en (accessed 20

April 2021).

6 European Commission, “Communication from the Commission to the Parliament, the Council, the

European Economic and Social Committee and the Committee of Regions. A hydrogen strategy for a

climate-neutral Europe” (8 July 2020), https://ec.europa.eu/energy/sites/ener/files/hydrogen_strategy.

pdf (accessed 20 April 2021).

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a trans-European, and trans-continental, leadership role in a new global market

while guaranteeing energy security and environmental protection.

Among the solutions receiving

attention in search of “the best

of both worlds” is having sources

of energy that are useful for

multiple needs, and in different

fields, without causing harmful

emissions to the environment.

Renewable electricity is one

answer but is not fit for all

purposes. It needs to be co-

mplemented by investments in

clean hydrogen value chains.

For the moment, hydrogen production is not yet a fully clean option for energy

needs. More than 95% of supply is based on natural gas steam reforming or coal

gasification, leading to the production of what is labelled as “grey” hydrogen,7

produced from natural gas, and “black” hydrogen, derived from coal.8 However,

this causes the release of carbon dioxide (CO2). Most of these emissions, up

to 95%, can be captured for storage or use: a solution called Carbon Capture

and Storage (CCS).9 Hydrogen production from natural gas through methane

steam or autothermal reforming with CCS is known as “blue” hydrogen. Another

approach is methane pyrolysis, splitting methane into two parts: a solid, carbon,

and a gas, hydrogen. This technique, labelled “turquoise” hydrogen production,

is still in the pilot stage.10 As both pyrolysis and gas reforming can be performed

using renewable sources, they are therefore solutions for avoiding the release of

CO2 or reaching negative emissions. Finally, there is “green” hydrogen, produced

via water electrolysis using electricity generated by renewable sources. While still

an uncompetitive option due to the associated costs and only making up a small

share of the global supply, green hydrogen is widely seen to be on the cusp of a

virtuous circle of policy-assisted growth, economies of scale, learning, and cost

declines. It furthermore enjoys favoured status as an option for a sustainable,

environmentally-friendly energy transition.

Naturally, there are considerable costs associated with developing this technology

and making it “scale to fit”. Presently, the production of hydrogen from low- or

zero-CO2 emissions is an expensive endeavour. However, positive signs abound:

those costs in the production of electricity from renewable sources are decreasing,

7 International Renewable Energy Agency, “Green hydrogen. A guide to policy making” (2020), https://

www.irena.org/publications/2021/May/Green-Hydrogen-Supply-A-Guide-To-Policy-Making (accessed

20 April 2021).

8 U.S. Department of Energy Hydrogen Program, “DOE H2A Analysis”, https://www.hydrogen.energy.gov/

h2a_analysis.html (accessed 20 April 2021).

9 European Commission, “Carbon Capture and Geological Storage”, https://ec.europa.eu/clima/policies/

innovation-fund/ccs_en (accessed 20 April 2021).

10 Cedric Philibert, “Methane splitting and turquoise ammonia”, Ammonia Energy Association (14 May

2020), www.ammoniaenergy.org/articles/methane-splitting-and-turquoise-ammonia (accessed 20

April 2021).

Renewable electricity is

one answer but is not fit

for all purposes. It needs

to be complemented

by investments in clean

hydrogen value chains.

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and they will continue to do so in the future.11 Still, investments in the European

Union to create a sustainable hydrogen market by 2030 are between €24 and

€48 billion for electrolysers, with €220 to €340 billion to be invested to scale up

and connect 80–120 GW of solar and wind energy for conversion into electricity

for electrolysers. There is also the need to adapt end-use sectors. Around €160 to

€200 million are required to convert a steel factory in the European Union to be

hydrogen compliant. Some €850 million to €1 billion would be needed to create

400 small-scale refuelling stations for land transport.12 Adding to that, €65 billion

in investments are anticipated for developing hydrogen transport, distribution,

storage, and refuelling stations.13 This projection should be thought of, naturally,

as a “best case scenario”. In recent years, investments have been stable—in the

vicinity of around €505 billion—but total energy investments are set to increase.14

The path towards a European hydrogen economy Policy decisions regarding the mass production of environmentally-friendly

hydrogen, as well as strategies for the development and implementation of clean

hydrogen value chains, will influence the pace of the energy transition. Tasks

ahead include identifying high-value applications to create immediate benefits

and to assist the scaling up of markets. It will also be important to replace

hydrogen that causes carbon emissions with renewable hydrogen in industrial

settings, for example, in the refining and production of methanol and ammonia.

To account for these needs, the European Commission has launched the

European Clean Hydrogen Alliance,15 which is to play a decisive role in facilitating

and implementing the actions proposed in the New Industrial Strategy16 as well

as generate investments to scale up production and develop the conditions for

increased demand. Until 2030, around €430 billion are estimated to be applied

in these projects.17 Equally vital are the recommendations of the Strategic

Forum for Important Projects of Common Interest regarding joint actions and

investments within Member States, as well as the development of a transnational

hydrogen supply chain.18 This is particularly important when some EU countries

11 Max Roser, “Why did renewables become so cheap so fast? And what can we do to use this global

opportunity for green growth?”, Our World in Data (1 December 2020), https://ourworldindata.org/

cheap-renewables-growth (accessed 20 April 2021).

12 European Commission, “A hydrogen strategy for a climate-neutral Europe”.

13 European Commission, “Hydrogen Roadmap Europe. A Sustainable Pathway for the European Energy

Transition”, Fuel Cells and Hydrogen Joint Undertaking (January 2019), https://www.fch.europa.eu/

sites/default/files/Hydrogen%20Roadmap%20Europe_Report.pdf (accessed 20 April 2021).

14 International Energy Association, “World Energy Investment 2020. Key findings”, https://www.iea.org/

reports/world-energy-investment-2020/key-findings (accessed 20 April 2021).

15 European Commission, “European Clean Hydrogen Alliance”, https://ec.europa.eu/growth/industry/

policy/european-clean-hydrogen-alliance_en (accessed 20 April 2021).

16 European Parliament, “New EU industrial strategy: the challenges to tackle”, (17 December 2020),

https://www.europarl.europa.eu/news/en/headlines/economy/20201112STO91445/new-eu-

industrial-strategy-the-challenges-to-tackle (accessed 20 April 2021).

17 European Commission, “European Clean Hydrogen Alliance”.

18 European Commission, “Strengthening Strategic Value Chains for a future-ready EU Industry”,

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(like the Netherlands, Poland, and France) have put hydrogen production at the

heart of their strategy for dealing with climate, energy, and economic growth,19

while others have presented “vision documents” (Portugal)20 or are developing

national hydrogen plans (Austria, Denmark, Italy).21 The desired synergies (some

exist already)22 between Member States will result in a hub, the Hydrogen

Energy Network.23 Finally, it is also important to mention the European Regional

Development Fund24 and the Cohesion Fund25 in the context of the REACT-EU

initiative for the green transition.26

The path on which carbon-free hydrogen will become the best option for a

more sustainable EU industry and economy, as suggested by the Commission,27

is composed of three phases. The first one spans the years 2020 to 2024. In this

period, the objectives are installing a minimum of 6 GW of renewable hydrogen

electrolysers and producing one million tons of clean, green hydrogen. It will

also include creating regulatory frameworks for a hydrogen market, developing

conditions to generate supply and demand, and prioritising the production of

renewable energy and low-carbon hydrogen. Investments will be evaluated by

the European Clean Hydrogen Alliance, with an Important Project of Common

European interest (IPCEI) providing potential national subsidy schemes based

on special exemptions attributed by the Directorate General for Competition.

However, other funding instruments will also support these kinds of investments,

e.g., funds like Next Generation EU,28 InvestEU,29 Strategic European Investment,30

and the Energy Trading System.31

https://ec.europa.eu/docsroom/documents/37824/attachments/2/translations/en/renditions/native

(accessed 20 April 2021).

19 Simon Frédéric, “EU countries agree to ‘rapidly upscale’ hydrogen market”, Euroactiv (15 December

2020), https://www.euractiv.com/section/energy-environment/news/eu-countries-agree-to-rapidly-

upscale-hydrogen-market (accessed 20 April 2021).

20 Portuguese Presidency of Council of Ministers, “Resolução de Ministros n.º63/2020. Aprova o Plano

Nacional de Hidrogénio” (Lisbon: 4 August 2020), https://dre.pt/application/conteudo/140346286

(accessed 20 April 2021).

21 International Renewable Energy Agency, “Green hydrogen. A guide to policy making”,

22 Government of the Netherlands, “Portugal and the Netherlands strengthen bilateral cooperation on

green hydrogen” (23 September 2020), https://www.government.nl/latest/news/2020/09/23/portugal-

and-the-netherlands-strengthen-bilateral-cooperation-on-green-hydrogen (accessed 20 April 2021).

23 European Commission, “Hydrogen” (11 December 2020), https://ec.europa.eu/energy/topics/energy-

system-integration/hydrogen_en (accessed 20 April 2021).

24 European Commission “European Regional Development Fund”, https://ec.europa.eu/regional_policy/

en/funding/erdf/ (accessed 20 April 2021).

25 European Commission, “Cohesion Fund”, https://ec.europa.eu/regional_policy/en/funding/cohesion-

fund/ (accessed 20 April 2021).

26 European Commission, “REACT-EU”, https://ec.europa.eu/regional_policy/en/newsroom/coronavirus-

response/react-eu (accessed 20 April 2021).

27 European Commission, “A hydrogen strategy for a climate-neutral Europe”.

28 European Commission, “Recovery plan for Europe. NextGenerationEU”, https://ec.europa.eu/info/

strategy/recovery-plan-europe_en#nextgenerationeu (accessed 20 April 2021).

29 European Union, “InvestEU”, https://europa.eu/investeu/home_en (accessed 20 April 2021).

30 European Commission, “An enhanced INVEST EU programme and New Strategic Investment Facility

to help kick-start the economy” (2020), https://ec.europa.eu/info/sites/info/files/economy-finance/

investeu-factsheet.pdf (accessed 20 April 2021).

31 European Commission, Innovation and Networks Executive Agency, “Innovation Fund”(4 April 2021),

https://ec.europa.eu/inea/en/innovation-fund (accessed 20 April 2021).

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A second phase is set in the window from 2025 to 2030, during which hydrogen

“needs to become part of an integrated energy system”,32 installing a minimum

of 40 GW of electrolysers and ramping up production to six million tons per year.

By the end of this period, carbon-free hydrogen is expected to become cost-

competitive. Still, demand-side stimuli—such as carbon contracts for difference

(CCfD)—will be the ultimate driver of industrial sectors’ decarbonisation (e.g.,

clean steel). Another expected result from this period is the emergence of

“hydrogen valleys”, regions with local green hydrogen production with the help

of decentralised renewable energy

systems. Apart from distribution to

satisfy local demand, there should be

investment in regional transportation

within the European Union.33 That

will eventually lead to larger scale

transportation, including between

Member States, facilitating the

transfer of hydrogen from countries

which have optimal conditions

and use renewable sources for its

production to others. The plan is

to develop a pan-European energy

grid for hydrogen and to have a

complete, open, and competitive

hydrogen market by 2030. This target

of the Commission seems, however, overly optimistic. As a reference point,

established energy markets like natural gas have taken considerably more time

to mature. There will also be the need to develop partnerships to overcome

trade barriers and distortions and to assure equal access even among countries

with different plans and approaches.34 Apart from maritime and long-distance

land transport, there is also the option of utilising existing gas pipelines with even

better transport capabilities after retrofitting.35 Furthermore, adjusting the gas

distribution grid and heating equipment could be done in a way to accept higher

shares of hydrogen, up to a 50% distribution in 2050 and 70% in 2070.36 Although

heating appliances may be technically able to handle such blends, it has been

proposed that the investment tipping point is at 20% of the TSO/DSO level. This

means that it makes more sense financially for the required investments to be

moved towards dedicated hydrogen transport.37

32 European Commission, “A hydrogen strategy for a climate-neutral Europe”.

33 Ibid.

34 Ibid.

35 Kira Taylor, “MEPs back natural gas as a ‘bridge’ to 100% renewable hydrogen”, Euroactiv (27 January

2021), https://www.euractiv.com/section/energy-environment/news/meps-back-natural-gas-as-a-

bridge-to-100-renewable-hydrogen (accessed 20 April 2021).

36 European Commission, In-depth Analysis in Support of the Commission Communication COM(2018)

773 (28 November 2018), https://ec.europa.eu/clima/sites/clima/files/docs/pages/com_2018_733_

analysis_in_support_en_0.pdf (accessed 20 April 2021).

37 Marcogaz, “Overview of available test results and regulatory limits for hydrogen admission into

existing natural gas infrastructure and end use” (October 2019), https://ec.europa.eu/info/sites/

The plan is to develop

a pan-European

energy grid for

hydrogen and to have

a complete, open, and

competitive hydrogen

market by 2030.

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By the third phase, until the year 2050, it is expected that the technology to

produce hydrogen with electrolysers, using electricity from renewable energies,

will reach maturity. Along with that, an easier transition to environmentally-

friendly energy would be able to take place in hard-to-decarbonise economic

sectors, or ones that must pay a high cost to achieve this. This will happen thanks

to the progressive decarbonisation of Europe's electricity mix and the increasing

availability of 100% clean-hydrogen, neutral electricity on the grid. On the other

hand, fossil-based hydrogen will face increasing pressure from stringent CO2

limits and pricing that will impact the (limited) carbon emissions associated with

blue hydrogen. However, a note of caution is needed here. Regardless of all the

plans and roadmaps, it is important to keep in mind that until the European Union

can reliably depend on the production of carbon-free hydrogen, low-carbon

emissions hydrogen will continue to be part of the energy mix.38 Natural gas is

expected to serve as a “bridge” to zero-carbon hydrogen resulting from renewable

sources.39 However, hydrogen in the broader, systemic decarbonisation context

must be seen as a helpful tool rather than a goal. Direct electrification via clean

power sources and digital solutions remains—by far—the most effective driver

of systemic efficiency. It is equally necessary to account for the kick-start effect

of a hydrogen economy supported by a blue/green blend on the market. This

will also have the benefit of letting renewable electricity contribute to direct

electrification, where this makes the most sense.

Points of concernTwo points are necessary to consider: one is technical, and the other is related to policy choices, namely when observed through a liberal lens, which we will tackle later. In the third phase mentioned above, it is expected that a significant

share of renewable electricity will be used for hydrogen production. Some

estimations point to an increase of 25%.40 This means a need for massive energy

production from renewable sources. The principle of “energy additionality”41

applies in this case. In situations where there are more productive uses for

electricity generated by renewables, this energy should not be diverted to

produce hydrogen. As electrification rates rise, this will incentivise natural gas-

based electricity production to provide for the growing gap in electricity supply.

Here again, blue hydrogen can work as a solution, since it is cheaper to produce

than green hydrogen. Clean hydrogen should only be produced from additional

renewable energy when supply exceeds the volume commissioned for direct

electricity consumption. This includes industry, light transportation, and the

electrification of energy grids. This is critical to a successful energy transition and

effectively removing carbon-based fuels42 from the energy mix. The source of

default/files/energy_climate_change_environment/events/documents/02.c.03_mf33_background_-_

marcogaz_-_infographic_hydrogen_admission_-_j_dehaeseleer_g_linke.pdf (accessed 20 April 2021).

38 Kira Taylor, “MEPs back natural gas as a ‘bridge’ to 100% renewable hydrogen”.

39 Ibid.

40 European Commission, “A hydrogen strategy for a climate-neutral Europe”.

41 International Renewable Energy Agency, “Green hydrogen. A guide to policy making”.

42 Ibid.

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this additional energy needs to be documented, and this can be performed via

power purchase agreements (PPAs) or certifications of origin.

The European Commission is aware of this need, as presented in a 2018 Directive

addressing the use of energy from renewable sources: “The Commission should

develop, by means of delegated acts, a reliable Union methodology to be applied

where such electricity is taken from the grid. That methodology should ensure

that there is a temporal and geographical correlation between the electricity

production unit with which the producer has a bilateral renewables power

purchase agreement and the fuel production”.43 The “temporal correlation” refers

to the timing of hydrogen production via electrolysis with the utilisation of low

carbon electricity—or, in the case of green hydrogen, zero carbon emissions—and

the “geographical” is the grid connection to hydrogen production, for example,

via a shared electricity network. It is good to remember that hydrogen operations

should not come at the expense of direct electrification.44

Sectors where hydrogen adds maximum value should be given priority. This will

prevent competition with other, more immediate solutions for decarbonisation.

Once clean hydrogen becomes a more viable and accessible energy vector, these

priorities can shift. By then, the renewable electricity-generating capacity will

have to have scaled up to the point of enabling both increased direct electricity

consumption and increased green hydrogen production. The market will also

be a force for change as businesses and enterprises lead the way in emissions

reductions. Plans are already being introduced by private companies, including

in the power and industrial sectors, to increase the role of renewable energy.45

Evidence suggests that companies are increasingly aware of the growing concern

about environmental protection and thus adapting their decisions to consumer

requests for a sustainable transition in Europe46 and elsewhere.47

In many sectors, electricity from renewable energy will be a more expedient

and cost-effective replacement for unabated fossil fuels than clean hydrogen.48

This especially applies to road passenger transportation: with a decline in

electric vehicle costs, battery technology developments would allow for longer

driving ranges and improved charging capability, making this kind of vehicle a

43 The European Parliament and the Council of the European Union, “Directive (EU) 2018/2001 of the

European Parliament and of the Council of 11 December 2018 on the promotion of the use of energy

from renewable sources”, Official Journal L328/95 (12 December 2018), https://eur-lex.europa.eu/

legal-content/EN/TXT/PDF/?uri=CELEX:32018L2001&from=fr (accessed 20 April 2021).

44 Bellona Europa, “Hydrogen from Electricity – Setting Sustainability Standards to Meet Innovation,

Deployment and Climate Action” (July 2020), https://network.bellona.org/content/uploads/

sites/3/2020/07/Hydrogen-From-Electricity-Setting-Sustainability-Standards.pdf (accessed 20 April

2021).

45 European Commission, In-depth Analysis in Support of the Commission Communication, COM(2018)

773.

46 European Commission, “Study on Incentives Driving Improvement of environmental Performance of

Companies”, Ecorys (8 May 2012), https://ec.europa.eu/environment/pubs/pdf/Incentives_Ecorys.pdf

(accessed 20 April 2021).

47 Adam Butler, “Do Customers Really Care About Your Environmental Impact?”, Forbes (21 November

2018), https://www.forbes.com/sites/forbesnycouncil/2018/11/21/do-customers-really-care-about-

your-environmental-impact/?sh=10dcbf03240d (accessed 20 April 2021).

48 International Renewable Energy Agency, “Green hydrogen. A guide to policy making”.

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preferred option. It applies to the

trucking segment, as well, because

hydrogen is widely seen as having a

future in this important road transport

sub-sector. Because electrification is

not an option for large marine vessels

or aircrafts over longer distances,

these sectors are therefore strong

candidates for hydrogenization.

The more wind and solar power

generation capacity being built, the

more challenging it will become to

match electricity supply and demand. There may be periods of considerable

excess generation capacity, thus calling for curtailment if there are no means to

store the electricity and/or causing severe electricity price volatility. This could

be one of the main functions of green hydrogen: to serve as a storage medium

for electricity.

The need for investments To make the contribution of clean hydrogen to a carbon-free economy a reality,

investments are needed and will call for the use of European Union funds,

contributions from the European Investment Bank, and private financing. The

involvement of investors from the private sector should start as soon as possible in

order to create a clear picture of these projects and their targets, technologies, and

strategic decisions. Private-public partnerships can work as a primary engine for

the development of solutions to obstacles regarding the implementation of clean

hydrogen plans and roadmaps. This should also include investments in research

and development, which will eventually contribute to a decrease in the costs

associated with production and utilisation. This joint work will generate know-

how and sharing of information between stakeholders, which is advantageous

for technological development, consensus creation, the definition of strategies

and market priorities, activity coordination, integrated growth, the development

of good practices, and organisational success. This will also contribute to risk

reduction in the early phases, facilitating the transition from demonstration to

commercialisation and allowing companies to build experience while reaping

the benefits of participating in initial market developments.49 Optimally, the main

goal of these partnerships, as well as general plans and roadmaps, is to reach

a point where public financing can be discontinued. There are precedents for

this kind of model being successful. In 2002, the European Union developed

the High-Level Working Group on Hydrogen,50 Optimally, the main goal of

these partnerships, as well as general plans and roadmaps, is to reach a point

49 International Renewable Energy Agency, “Green hydrogen. A guide to policy making”.

50 European Commission, “Hydrogen Energy and Fuel Cells. A vision of our future”, Fuel Cells and

Hydrogen Joint Undertaking (2003), https://www.fch.europa.eu/sites/default/files/documents/hlg_

vision_report_en.pdf (accessed 20 April 2021).

This could be one of

the main functions

of green hydrogen:

to serve as a storage

medium for electricity.

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where public financing can be discontinued. There are precedents for this kind

of model being successful. In 2002, the European Union developed the High-

Level Working Group on Hydrogen,51 which led to the 2004 establishment of the

Fuel Cell Technology Platform that created the Fuel Cells and Hydrogen Joint

Undertaking.52

The revision of the “State aid Framework” in 202153 will allow for the creation

of a comprehensive model of support systems for the implementation of the

European Green Deal while limiting competitive advantages and adverse effects

within Member States. On the demand side, the European Commission is set to

apply minimum shares, or quotas, for clean hydrogen or derivatives in certain

end-use sectors, like the chemical and transport industries. These should be

based on the performance of green hydrogen as a market solution and should

also include the contribution of blue and turquoise hydrogen. Since there is still

a high level of uncertainty around demand for clean hydrogen, support should

target hard-to-abate sectors such as marine and air transportation and high-

temperature industrial processes54 by addressing the cost gap between renewable

hydrogen and its fossil-fuel alternatives. The creation of tendering systems for

“carbon contracts for difference” (CCfD) or contracts with public counterparts

will help to incentivise investment by paying the difference between the carbon

“strike price” (a set price for negotiations of derivate contacts) and the real one.

Equally, a fixed amount per avoided ton of greenhouse gases emissions could be

set, thus bridging the cost gap with conventionally produced products.55 CCfDs

should also be made available for blue hydrogen production, at a different strike

price, covering the relative funding gaps for each technology. Blue hydrogen

will be able to deliver similar environmental protection at 95% decarbonisation

rate compared to green hydrogen projects. It is expected that the grid mix will

only reach 32% renewable electricity by 2030. In such an event, the average

decarbonisation rate of green hydrogen will be well below the blue hydrogen

potential, putting the 2030 greenhouse gases reduction target at risk.

The creation of a so-called “liquid market”, based on green hydrogen supply

and demand, would increase the number of producers and the size of markets,

facilitating integration with other energy markets. This will increase investments

and help develop smarter strategies for hydrogen production via electrolysis

with renewable energies, considering technological developments, geographical

solutions, storage, and distribution means.56 European Commission, “EU Emissions

Trading System.57 as with the Next Generation EU fund and the 2030 Climate

51 European Commission, “Deployment Strategy”, European Hydrogen & Fuel Cell Technology Platform

(August 2005), https://www.fch.europa.eu/sites/default/files/documents/hfp_ds_report_aug2005.pdf

(accessed 20 April 2021).

52 European Commission, “Deployment Strategy”.

53 European Commission, “A hydrogen strategy for a climate-neutral Europe”, p.10.

54 International Renewable Energy Agency, “Hydrogen from renewable power. Technology outlook

for the energy transition” (September 2018), https://www.irena.org/-/media/Files/IRENA/Agency/

Publication/2018/Sep/IRENA_Hydrogen_from_renewable_power_2018.pdf (accessed 20 April 2021).

55 European Commission, “A hydrogen strategy for a climate-neutral Europe”, p.13.

56 European Commission, “A hydrogen strategy for a climate-neutral Europe”.

57 European Commission, “EU Emissions Trading System. EU ETS” (20 April 2021), https://ec.europa.eu/

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European Liberal Forum Research Paper No 2 | July 2021Clean Hydrogen and the Future of Energy

Target Plan,58 for the creation of financial support towards initiatives aiming at the

sustainable recovery of the European economy. Emissions trading systems have

been a point of interest among academics and policymakers alike.59 In addition,

the European Union is set to implement measures to protect industries against

carbon leakage with a Carbon Border Adjustment Mechanism (CBAM).60

Liberal view of (new) market growthAdding to the work done by the European Commission, the European Parliament

is also leading the way in creating frameworks for change to happen. This

includes the “phasing-out of hydrogen” production based on the utilisation of

fossil fuels, the certification of hydrogen imports, and the avoidance of carbon

leakage that is associated with the production and transportation of hydrogen.

Notably, the Parliament will closely follow the implementation of incentives to

generate demand for this new source of energy, as well as to “create a European

hydrogen market and fast deployment of hydrogen infrastructure”.61 However,

it is interesting to note that, according to the position of the Committee on

Industry, Research and Energy, and also in the European Parliament, low-carbon

hydrogen will be recognised to serve as a bridging technology in the short and

medium term.62

Regardless of what funding mechanisms are made available, including European

funds, it is important that financial or fiscal supports are direct and transparent.

This applies to hydrogen markets and the generation of electricity from

renewable sources, including flexibility of services, increased renewable energy

production, and more incentives for exploring renewable sources as carbon-free

hydrogen production moves on to the third phase of implementation. During

that period, there should be competitive market growth, both on the supply and

demand sides. Direct financial incentives, either central (European Union) or local

(Member States), should be discontinued, privileging private capital for hydrogen

production and delivery to end-point users.

From the outset of this new ambitious EU undertaking to preserve the

environment for future generations—while still maintaining European economies’

clima/policies/ets_en (accessed 20 April 2021).

58 European Commission, “2030 Climate Target Plan”.

59 Rikard Forslid, “Carbon Adjustments and Climate Clubs in the EU context” (Brussels: European Liberal

Forum 2020), https://www.liberalforum.eu/publications/border-carbon-adjustments-and-climate-

clubs-in-the-eu-context/ (accessed 20 April 2021).

60 Karl Mathiesen & Paola Tamma, “Europe’s plan to tax the world into climate ambition” (21 April 2021),

https://www.politico.eu/article/europes-plan-to-tax-the-world-into-climate-ambition-joe-biden-

frans-timmermans/?utm_medium=Social&utm_source=Twitter#Echobox=1619115166 (accessed 30

May 2021).

61 European Parliament, “Renewable hydrogen: what are the benefits for the EU?” (17 May 2021), https://

www.europarl.europa.eu/news/en/headlines/society/20210512STO04004/renewable-hydrogen-what-

are-the-benefits-for-the-eu (accessed 30 May 2021).

62 European Parliament, “Report on a European Strategy for Hydrogen”, Committee on Industry, Research

and Energy (April 2021), https://www.europarl.europa.eu/doceo/document/A-9-2021-0116_EN.pdf

(accessed 30 May 2021), p.12.

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competitiveness and sustainability by leading the way in producing a (new)

market for carbon-free hydrogen—liberal values are essential to ensure that this

market is free, open, and with strong participation of the private sector. European

Union and Member States’ initial investments and regulations are vital. However,

as the phases progress towards the massification of production, distribution, and

utilisation of clean hydrogen, the market should have the opportunity to regulate

itself to the benefit of not only end users but also industry. This is particularly

important because some EU Member States that already have optimal conditions

to garner energy from renewable sources will have to break from the tradition

of excessive governmental intervention combined with poor planning and

execution. However, the conditions are set for an auspicious start and, hopefully,

a more sustainable and prosperous future.

About ELF The European Liberal Forum (ELF) is the official political foundation of the European Liberal Party, the ALDE Party. Together with 47 member organisations, we work all over Europe to bring new ideas into the political debate, to provide a platform for discussion, and to empower citizens to make their voices heard. Our work is guided by liberal ideals and a belief in the principle of freedom. We stand for a future-oriented Europe that offers opportunities for every citizen. ELF is engaged on all political levels, from the local to the European. We bring together a diverse network of national foundations, think tanks and other experts. In this role, our forum serves as a space for an open and informed exchange of views between a wide range of different EU stakeholders.

Author bio Ricardo Silvestre is International Officer of Portuguese think tank Social Liberal Movement. He hosts the Liberal Europe Podcast, and is the author of think pieces and scientific articles on energy security of the European Union. Ricardo holds a Ph.D. in Philosophy and a Master’s degree in International Relations.

Copyright 2021 / European Liberal Forum ASBL.

This publication was co-financed by the European Parliament. The European Parliament

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DOI: 10.53121/ELFRP2

ISSN: 2736-5816

Cover image: AdobeStock